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The China Syndrome: Local Labor Market Effects of Import Competition in the United States.⇤

David H. Autor MIT and NBER David Dorn CEMFI and IZA August 2011 Gordon H. Hanson UCSD and NBER

Abstract We analyze the effect of rising Chinese import competition between 1990 and 2007 on local U.S. labor markets, exploiting cross-market variation in import exposure stemming from initial differences in industry specialization while instrumenting for imports using changes in Chinese imports by industry to other high-income countries. Rising exposure increases unemployment, lowers labor force participation, and reduces wages in local labor markets. Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in exposed labor markets. The deadweight loss of financing these transfers is one to two-thirds as large as U.S. gains from trade with China. Keywords: Trade Flows, Import Competition, Local Labor Markets, China JEL Classifications: F16, H53, J23, J31

We thank Daron Acemoglu, Robert Lawrence, Isaac Mbiti, Guy Michaels, Robert Staiger, John van Reenen, Jonathan Vogel, and numerous seminar and conference participants for valuable comments. Autor acknowledges funding from the National Science Foundation (SES-0239538). Dorn acknowledges funding from the Spanish Ministry of Science and Innovation (CSD2006-00016 and ECO2010-16726) and from the Community of Madrid (S2007/HUM0444).

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Introduction

The past two decades have seen a fruitful debate on the impact of international trade on U.S. labor markets (Feenstra, 2010). Beginning in the 1990s, the literature developed rapidly as economists sought to understand the forces behind rising U.S. wage inequality. While in the 1980s, trade in the form of foreign outsourcing was associated with modest increases in the wage premium for skilled manufacturing labor (Feenstra and...